Explanations, please, on who made a killing from the promotion – then demotion – of Allied Farmers

Alf is hoping our Commerce Minister, the splendid Simon Power, will whistle Mark Weldon across to the Beehive this week for a “please explain”.

Weldon, of course, is the Chief Executive of the NZX and was a member of the Capital Market Development Taskforce. The task force came up with a bundle of ideas for improving that bit of our financial system.

Last week, Power was saying the Government shared the taskforce’s view that capital markets are key to improving the financial wellbeing of all New Zealanders and a vital source of finance for business.

“We need to rebuild mum and dad investor trust in capital markets which has been severely dented by the global recession and finance company collapses.

“We want everyday investors to feel more confident about putting their savings into capital markets, through understanding the basics of investment, getting advice they can trust, and making informed choices.

“We need to build opportunities for people to invest and to invest safely.

“These changes will achieve that and build on changes that the Government already has in train to fix the financial system, such as legislation on trustees, financial advisors, moratoria regulation, and auditors.

But while Power wants Mum and Dad investors to have confidence in these sorts of investments, what’s going on at the NZX?

Well, if the NZ Herald has got things right, it transpires the buggers at the NZX are running a shop that has a first-class and an economy-class information system. Some sensitive market information goes first to the heavyweights with the dosh to pay for it.

In this case the information that went out only to the first-class investors related to an announcement that Allied Farmers would be promoted to the NZX-50.

The NZX didn’t respond to Herald’s questions, we are told, so Alf doesn’t know its side of the story.

But not only did the NZX send the information out only to the first-class recipients.

It later changed its mind about promoting Allied Farmers.

The bloody share price ducked and dived like Pansy Wong at question time in Parliament.

It did cross Alf’s mind that the Securities Commission or some other outfit might keep an eye on the NZX and, moreover, might have something to say about the way the Allied Farmers decision was announced and later reversed.

Then again, Alf muses, maybe it takes time for the commission to get around to this sort of thing.

Alf’s musing is based on an NZX paper to the capital markets task force.

In the context of who controls the NZX, the paper says the Securities Commission conducts an annual oversight review of NZX’s regulatory functions.

This is an exhaustive process that, for example, in 2009 started in January for the 2008 year and is still ongoing.

That would have been January last year.

The NZX wrote its paper in August.

So maybe in a year or two, the Securities Commission will have caught up with the on-again-off-again Allied Farmers listing circus and pass some sort of judgement.

Here’s what the Herald reported –

Sharemarket operator NZX has been caught out operating a two-speed information regime that favours institutional investors over mums and dads as it botched a decision over whether Allied Farmers should be promoted to the NZX-50.

In a series of events that had market watchers reeling, NZX on Monday advised institutional investors who subscribe to its pay-per-view NZX Index Memo service that Allied Farmers would be promoted to the NZX-50 and related indices effective from February 22.

Allied’s promotion had been widely anticipated given its equity-for-debt transaction with Hanover Finance had the effect of boosting its market capitalisation.

Although clearly price-sensitive, the news about Allied Farmers’ promotion was not released to the wider market.

This week Allied Farmers shares rose sharply, with market watchers party to the information putting this down to index-tracking funds buying Allied shares in order to bring their portfolios into line with the rejigged index.

However NZX yesterday sent another Index Memo informing subscribers that there would, in fact, be no change to the index, effectively reversing its decision to promote Allied.

Allied Farmers shares quickly fell in response prompting the company to issue its own statement to the market.

There’s a lot more stuff in the Herald about this carry-on.

It seems Allied Farmers shares fall by over 10 per cent.

The Herald quotes a market commentator, Arthur Lim, who said the information on the index that was only made available to the subscribers of the Index Memo was clearly “very price sensitive information that is only accessible to a few”.

Since its recapitalisation Allied Farmers’ share register has been overwhelmingly dominated by “mum and dad” former Hanover debenture investors.

“They’ve got no idea,” said Lim.

A good look for Mark Weldon?

Don’t think so. Alf looks forward to hearing from Cactus Kate on the matter.

One Response to Explanations, please, on who made a killing from the promotion – then demotion – of Allied Farmers

  1. Stuart says:

    Thanks for the Heads up on this one. The brown stuff seems to have hit the fan with Sec Com asking NZX for a Please Explain. Oh to read Cactus Katie views.

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